Envestnet (and former subsidiary Yodlee) erred in destroying evidence that might have boosted allegations in an ongoing lawsuit against the firm by a former fintech partner, according to a court order.
According to the latest development in the case between FinancialApps vs. Envestnet and subsidiary Yodlee, a Delaware court appointee surmised that Envestnet didn’t preserve data from a third-party service called Papertrail that could have shown whether Envestnet misappropriated FinancialApps’ trade secrets. According to the order, Envestnet approached FinApps in 2016 to license its product, “Risk Insight,” which helps financial institutions determine whether to lend money to credit applicants. By 2019, FinApps’ counsel allegedly reached out to Yodlee for delinquent payments.
In May of that year, FinApps purportedly suspected Envestnet/Yodlee might steal their tech to create a competitive product. FinApps sent a cease-and-desist letter on May 17 and terminated the contract later that month. FinApps filed its complaint on July 17, alleging the defendants had stolen trade secrets for their own benefit.
In 2024, FinApps accused the defendants of “spoliation” (a legal term for losing or destroying evidence). According to FinApps, after the complaint was filed, Envestnet/Yodlee counsel mandated employees to retain data as potential evidence. However, the firm canceled its subscription for Papertrail, a third-party logging app touting itself as “a flight data recorder” for apps. The subscription would include detailed data on whether and how Risk Insight functionality was accessed, by whom and whether data was copied from the system. According to FinApps, the cancellation led to the automatic deletion of the data.
In late December, Delaware District Court Judge Jennifer Hall (who’s overseeing the lawsuit) appointed Chad S.C. Stover as special master to report on FinApps’ allegations. (A special master is an appointed individual to conduct a specific task for the court.) Stover found Envestnet’s explanations for deleting the data “flimsy,” and argued that Envestnet knew (or should have known) that the data was relevant to the ongoing lawsuit and could have contacted FinApps to ask if the data needed to be retained (which it never did).
“Instead, they unilaterally and intentionally cancelled the subscription days after FinancialApps filed this lawsuit,” Stover wrote. “In this circumstance, even if (Envestnet/Yodlee) had not known that the data was relevant (and I find that they did know), they acted unreasonably by not conferring with the other side and acting unilaterally.”
According to Stover, Envestnet’s argument that the trade secrets accusation didn’t rest solely on the Papertrail data “misses the mark.”
“There is no substitute for the Papertrail log data,” Stover wrote. “The availability of other evidence might be relevant if that evidence was a replacement for the spoliated evidence. But it is not.”
As a result, Stover recommended that the jury in the eventual trial be allowed to presume that the Papertrail data would have been “unfavorable” to Envestnet and Yodlee’s case, and that FinApps could offer evidence of the data loss at trial.
Envestnet declined to comment, citing a policy not to do so on pending litigation. (Envestnet has since been acquired by Bain Capital, while Yodlee was acquired by private equity firm STG Capital.) According to the law firm Kasowitz LLP (which represents FinApps), the case is moving toward a jury trial in Delaware federal court.
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